Supply Chain Coordination and Influenza Vaccination

Abstract

Billions of dollars are being allocated for influenza pandemic preparedness, and vaccination is a primary weapon for fighting influenza outbreaks. The influenza vaccine supply chain has characteristics that resemble the news vendor problem, but possesses several characteristics that distinguish it from typical supply chains. Differences include a nonlinear value of sales (caused by the nonlinear health benefits of vaccination due to infection dynamics) and vaccine production yield issues. We show that production risks, taken currently by the vaccine manufacturer, lead to insufficient supply of vaccine. Unfortunately, several supply contracts that coordinate buyer (governmental public health service) and supplier (vaccine manufacturer) incentives in industrial supply chains can not fully coordinate the influenza vaccine supply chain. We design a variant of the cost sharing contract and show that it provides incentives to both parties so that the supply chain achieves global optimization and hence gurantees sufficient supply of vaccine. Influenza is an acute respiratory illness that spreads rapidly in seasonal epidemics. Globally, annual influenza outbreaks result in 250,000 to 500,000 deaths. The World Health Organization reports that costs in terms of health care, lost days of work and education, and social disruption have been estimated to vary between $1 million and $6 million per 100,000 inhabitants yearly in industrialized countries. A moderate, new influenza pandemic could increase those losses by an order of magnitude (WHO, 2005).This paper provides background about influenza and vaccination, a key tool for controlling influenza outbreaks, then highlights some operational challenges for delivering those vaccines. One challenge is the design of contracts to coordinate the incentives of actors in a supply chain that crosses the boundary between the public sector (health care service systems) and private sector (vaccine manufacturers).Some experts suggest the U.S. government should promise to purchase a fixed amount of flu vaccine-despite the cost and the likelihood that some of the money would end up being wasted. Canada, for instance, has contracts with vaccine makers to cover most of its population. …That takes much of the risk out of the company's business, but still lets it manufacture additional doses for the private market… (WSJ, Wysocki and Lueck, 2006) I recently met with leaders of the vaccine industry. They assured me that they will work with the federal government to expand the vaccine industry, so that our country is better prepared for any pandemic. … I'm requesting a total of $7.1 billion in emergency funding from the United States Congress…(George W. Bush, 2005) We then present a model of a government's decision of purchase quantities of vaccines, which balances the public health benefits of vaccination and the cost of procuring and administering those vaccines, and a manufacturer's choice of production volume. We characterize the optimal decisions of each in both selfish and system...

The Impact of Demand Uncertainty on Consumer Subsidies for Green Technology Adoption

“…Instead, we show that the subsidy mechanism is sufficient to achieve a coordinated outcome. Chick et al (2008) and Mamani et al (2011) have looked at supply chain coordination in government subsidies for vaccines. Nevertheless, as we discussed above the two supply chains are fairly different.…”

Supply Chain Coordination Considering Stochastic Demand and Raw Material Quality Defects

“…Further, Kelle et al (2009) introduced factors affecting safety stock from the uncertainty of product quality to inspect its effects on supply chain coordination [19]. Wang and Xiao (2009), Chick (2008) discussed supply chain coordination under return policies of proportion buy-back and discount buy-back, respectively [20][21]. Their findings indicate that return policy could coordinate supply chain by making wholesale price accord with marginal cost -plus pricing method and allowing retailer to return surplus order at wholesale price.…”

The Optimal Composition of Influenza Vaccines Subject to Random Production Yields

“…Federgruen and Yang (2007) analyze a model for a firm or public organization to decide a set of suppliers and the amount of orders from each under uncertain demand and supply. Chick et al (2006) show that if a central government is the sole purchaser and a single manufacturer supplies all vaccines at a fixed price, a cost-sharing contract guarantees a sufficient supply of vaccines. As the authors admit, most epidemic models (including theirs) assume that the government can precisely specify the number of individuals to be vaccinated, ignoring the fact that individuals make their own immunization decisions.…”

“…Each manufacturer's production capacity is proportional to the available production time, which is determined in turn by when the Committee selects a Following Chick et al (2006) and Corbett and Deo (2006), the quantity of vaccines produced is represented as the product of the number of eggs put into production and a random production yield. .…”